Nigeria’s money supply surges to N108.9 trillion, up 68% in one year

Nigeria’s money supply (M3) has grown by 62.8% year-on-year (YoY) in September 2024, despite the Monetary Policy Committee’s (MPC) tightening stance aimed at curbing excess liquidity to control inflation.

According to the latest data from the Central Bank of Nigeria (CBN), M3 increased to N108.95 trillion in September 2024, compared to N66.94 trillion in the same month last year.

On a month-over-month (MoM) basis, the money supply rose by 1.6% from N107.19 trillion in August 2024.

The growth in M3 reflects the resilience of the economy amid efforts by the CBN to stabilize inflation and strengthen the local currency under Governor Yemi Cardoso, who took office on September 22, 2023.

Growth in foreign assets drives M3 

M3 encompasses both net foreign assets and net domestic assets, painting a holistic picture of the nation’s monetary dynamics.

It is also M1 (monies that are very liquid such as cash, checkable (demand) deposits, and traveler’s checks) plus CBN bills, while M2 represents currency outside banks plus demand deposits and quasi-money (investments).

• Despite the MPC’s tightening stance, which typically aims to curb excess liquidity in the economy to control inflation, the money supply has shown resilience.
• The consistent increase in M3 suggests underlying factors driving liquidity growth, potentially including government spending.
• Net domestic assets (NDA) increased by 54.6% YoY, rising from N54.41 trillion in September 2023 to N84.14 trillion in September 2024. This growth signals robust lending activity, indicating that businesses are still seeking credit despite higher interest rates. On an MoM basis, NDA also grew by 3%, reflecting steady credit expansion within the economy.
• Meanwhile, net foreign assets (NFA) recorded a 97.9% YoY increase, climbing from N12.54 trillion in September 2023 to N24.82 trillion a year later.
• However, the NFA declined by 2.7% MoM, which may point to CBN interventions in the foreign exchange market aimed at stabilizing the naira amid external pressures.

The sustained growth in money supply, despite the MPC’s restrictive measures, highlights the complex nature of monetary management.

Cardoso’s policies—focused on inflation control, currency stabilization, and promoting transparency—have contributed to shaping these monetary dynamics.

What MPC members have to say on M3 growth 

The Governor of the Central Bank of Nigeria (CBN), Yemi Cardoso, at a press briefing at the end of the 297th Monetary Policy Committee (MPC) meeting in Abuja, acknowledged the growth in liquidity despite tightening measures, stressing the need for vigilance to prevent inflationary pressures from worsening.

He said: “The MPC noted the continued growth in money supply, recognising the need to curtail excess liquidity in the system as well as address foreign exchange demand pressures.” 

In the recently released personal statements of the MPC members, Aku Pauline Odinkemelu emphasized the risks associated with excessive liquidity during the September 2024 MPC meeting, attributing part of the inflationary pressure to increased money supply from FAAC allocations.

She cautioned that rising money supply, coupled with demand-pull inflation driven by supply shocks, poses a threat of hyperinflation if not managed properly.

She said: “I understand that excess liquidity is a common feature of the banking systems of developing economies, however, the continued growth of money supply in Nigeria, which is largely attributed to fiscal surprises, presents a serious challenge to monetary policy effectiveness. A further but gradual hike will also be effective in curtailing the excess liquidity in the banking system.” 

Lamido Abubakar Yuguda addressed the issue of money supply growth during the September 2024 MPC meeting, acknowledging that the increase in both net foreign and domestic assets reflects inflationary pressures.

Yuguda highlighted that exchange rate depreciation has contributed to rising money supply, stressing the need for tighter monetary policy to manage inflation and stabilize the economy.

He said: “Broad money supply increased by 34.1 per cent in July 2024 over the preceding December, and was 18.5 percentage points higher than the programme target for fiscal 2024. The growth in money supply was fuelled by increases in both net foreign assets and net domestic assets driven by the depreciating currency. This outturn points to lingering inflationary pressure from the monetary side.” 

He warned that without firm measures, elevated liquidity could intensify inflationary risks, requiring continuous vigilance to sustain macroeconomic stability.

What you should know 

• The rise in money supply typically indicates increased liquidity in the financial system, which can stimulate economic growth.
• With more money circulating in the economy, businesses may find it easier to access credit for expansion and investment.
• This can lead to higher production, job creation, and overall economic development.
• Additionally, the increase in money supply can boost consumer spending, driving demand for goods and services and encouraging further economic activity.
• However, a significant increase in money supply also has the potential to fuel inflation. When more money chases the same amount of goods and services, prices tend to rise.
• Nigeria, which has been grappling with inflationary pressures, may see a further increase in inflation rates if the growth in money supply is not matched by a corresponding increase in production. This can erode purchasing power and impact the cost of living, particularly for lower-income households.